Love thy Vendor!

I came across a great article today via HBR about the vendor-customer dynamic and how, unfortunately, vendors take an unnecessary beating from their customers in the name of “good business”. All to often, I think people tend to forget that business is done between people – not machines, not companies… but PEOPLE! Therefore, if you want to get the best out of people, you need to start by putting the best into people – and you do that by exercising the Golden Rule(treat others as you would like to be treated).

Remember, in today’s globally competitive business environment, having strong ties to your vendors can yield tremendous insight, which could allow you to make better decisions. Your vendors have relationships with your competitors and have powerful insights on how the market is moving along. In addition, vendors can provide you with financing (e.g. net terms) that allow you to manage your cash flow more effectively. So, why would you want to treat someone who can help you, badly?

Tony Hsieh is the CEO of Zappos.com, Inc. During the past 10 years, the company has grown from almost no sales to more than $1 billion in annual gross merchandise sales, driven primarily by repeat customers and word of mouth. Below is an excerpt from Tony’s forthcoming book that describes how Zappos approaches vendor relationships. This excerpt was written by Fred Mossler, who was originally hired over 10 years ago to head up the Zappos merchandising team.

The typical industry approach is to treat vendors like the enemy. Don’t show them any respect, don’t return their phone calls, make them wait for scheduled appointments, and make them buy the meals.

It’s a wonder people don’t realize that business doesn’t have to be done this way.

Ultimately, each party is out for the same thing: to take care of the customers, grow the business, and be profitable. In the long run, it doesn’t behoove either party if there’s only one winner. If vendors can’t make a profit then they don’t have money to invest in research and development, which in turn means that the products they bring to market will be less inspiring to customers, which in turn negatively affects the retailer’s business because customers aren’t inspired to buy. People want to cut costs and negotiate aggressively because there’s a limited amount of profit to be shared by both sides. As a result of this “death spiral,” most retailers fail.

We wanted Zappos to be different. We decided to create collaborative relationships in which both parties shared the risks, as well as the rewards. We found it much easier to create alliances when partners aligned themselves to the same vision and committed to accountability, knowing we’d all benefit from achieving our goals. Not only does this approach get both sides pulling in the same direction, it creates an environment and culture where people are inspired and passionate about what they do.

We implement this partnership mentality in many ways at Zappos, but it all begins with the Golden Rule: Treat others as you’d like to be treated. When vendors fly to visit our offices in Las Vegas, they are greeted at the airport by one of our Zappos shuttles. If it’s their first time visiting our office, we give them a tour. We offer them drinks and snacks to make them feel comfortable. This is all far from industry standard, but if we were in their position, I’m sure we wouldn’t mind being treated this way.

The same mentality applies to communication with our vendors. If they call, we try to return their call the same day. If they e-mail, we try to respond within a few hours. We realize the importance of communication, and if our partners are trying to reach us, we need to be responsive. Our customers expect this type of responsiveness from us, and so should our vendors.

Early on in Zappos, because of the size of our business, we realized we were going to need help running it. There was just no way we could afford to staff all the buyers needed to manage the number of styles and sizes in our selection. I’ll never forget the afternoon I turned my chair around and asked Tony what he thought about giving vendors access to the same information as our buyers. Traditionally in retail, information is hoarded. Retailers wouldn’t want a vendor to know how well they’re doing so they can demand more. But if we created true transparency in our business, not only would they help us, they’d benefit as well.

Not too long after I proposed the idea to Tony, he spun back around and said, “Were you thinking about something like this?” He had created the beginning of what we now refer to as “the extranet.” It allows the vendors complete visibility into our business. Vendors are able to see inventory levels, sales, and profitability. They can write suggested orders for our buyers to approve. They can communicate with our creative team and make changes to their brand boutiques on the site. In effect, they’re given the keys to the shop.

Why do we do this? The average buyer at Zappos has a portfolio of 50 brands, but because of transparency, there are an additional 50 pairs of eyes helping run the business, too. Not only that, vendors are the experts at what they do. No one buyer knows a brand better than the brand’s own representative. So why not leverage their knowledge to help us run a better business? As a result, when they feel empowered to manage their own business using the tools and accessibility we provide, they’ll spend more hours helping us than their typical account. The success of our team can be attributed to our buyers and vendor partners, together.

Negotiations at Zappos are a bit different as well. Instead of pounding the vendors, we collaborate. We decide together what makes the most sense for the business, the amount of risk we want to sign up for, and how quickly we want the business to grow.

We approach marketing from a similar standpoint as well. We collaborate on what both of our brands are trying to achieve and what it will take us to get there. We don’t believe that negotiations need to be an arm-wrestling match. If both parties are honest about our positions and objectives, we should be able to find an equitable way to get there.

We know there’s no way we could’ve achieved our success as a company without our vendors’ commitment and passion, so every year, we like to show a little gratitude. We take over a venue such as the Hard Rock Hotel pool or Rain Nightclub at the Palms and invite all of our vendors (more than 1,000) to our annual Vendor Appreciation Party. Between our vendors and the Zappos team, we have more than 3,000 people on hand.
The benefits we’ve reaped from concentrating on building relationships with our vendors are endless. They help us plan our businesses and make sure we have enough of the right product at the right time. When inventory’s scarce, they help procure inventory on hot-selling items. Sometimes they provide unique items that can only be found on Zappos. They work closely with our marketing team to plan the right campaigns, making sure we’re in the right places. We get involved in decisions regarding the direction of their lines.

All of this is because of the trust we’ve built in the industry over the past 10 years. Most importantly, I think of our vendors as friends. We enjoy each other’s company. We respect and value our relationships, and want to see each other do well. I’ve known many of the people I work with for almost my entire career.

When I left Nordstrom to help start Zappos and solicit brands, it was a risky proposition. At the time, we were in a channel no one thought would work, with a company no one had ever heard of. But they supported it and were willing to put their necks on the line because of the relationship we’d built over the years. Without those friendships and their belief in us, there might not be a Zappos today. Those relationships were, and continue to be, one of the most valuable parts of our business.